FINANCIAL MANAGEMENT 314
Component 1: Chapter 2: Financial Statements:
Financial Statements:
• Financial statements need to be comparable
- Statements of companies may not be comparable as a result of different accounting standards
- SA companies converted to IFRS after 2005; comparison to previous years where other
accounting standards were used may be problematic; IFRS only a guideline, open for
interpretation
- Multinational firms: US GAAP vs. IFRS
• Solution ?
- Standardise published financial statements
o Facilitates comparisons between companies and over time
o Simplifies the calculation of financial ratios
3 Financial Statements:
• Statement of profit or loss (Income statement)
- Income = Expenses + retained earnings
o Expenses increase or decrease amount of retained earnings left
• Statement of financial position (Balance sheet)
- Non-current assets + current assets = (ordinary shares + reserves + preference shares + non-
controlling interest) → equity (+ non-current liabilities + current liabilities) → debt
• Statement of cash flow (cash flow statement)
- Cash at the beginning of the year + movement in cash during the year = cash at the end of the
year
o Movement in cash during the year = cash from operating activities +/- cash from investing
activities +/- cash from financing activities
• Formats of standardised financial statements:
- Examples of the three major financial statements are provided on SUNLearn
- Need to understand relationship between the ELEMENTS that form part of each statement, and
be able to identify all ITEMS included within these elements
- NB: Terminology used in the module
Component 1 – Difficult Ltd.:
Statement of Financial Position:
,Goodwill:
Revaluated at R600 000 [was R900 000 end 2019]
Impairment in Goodwill = R300 000
Treat the same as depreciation and amortization in the statement of cash flows (ie add back)
Share investments
Opening balance = R 400 000
Total share investment was sold, i.e. closing balance is R 0
Sold at a profit of 50% = 50% × 400 000
= 200 000 (Gain in SPL)
Proceeds (SCF) = R 600 000
,Issued ordinary share capital
Retained earnings :
2020 2019
385 000 240 000
Retained earnings for the year = 385 000 – 240 000 = 145 000
, Statement of Profit or Loss:
Statement of Cash Flows:
Component 1: Chapter 2: Financial Statements:
Financial Statements:
• Financial statements need to be comparable
- Statements of companies may not be comparable as a result of different accounting standards
- SA companies converted to IFRS after 2005; comparison to previous years where other
accounting standards were used may be problematic; IFRS only a guideline, open for
interpretation
- Multinational firms: US GAAP vs. IFRS
• Solution ?
- Standardise published financial statements
o Facilitates comparisons between companies and over time
o Simplifies the calculation of financial ratios
3 Financial Statements:
• Statement of profit or loss (Income statement)
- Income = Expenses + retained earnings
o Expenses increase or decrease amount of retained earnings left
• Statement of financial position (Balance sheet)
- Non-current assets + current assets = (ordinary shares + reserves + preference shares + non-
controlling interest) → equity (+ non-current liabilities + current liabilities) → debt
• Statement of cash flow (cash flow statement)
- Cash at the beginning of the year + movement in cash during the year = cash at the end of the
year
o Movement in cash during the year = cash from operating activities +/- cash from investing
activities +/- cash from financing activities
• Formats of standardised financial statements:
- Examples of the three major financial statements are provided on SUNLearn
- Need to understand relationship between the ELEMENTS that form part of each statement, and
be able to identify all ITEMS included within these elements
- NB: Terminology used in the module
Component 1 – Difficult Ltd.:
Statement of Financial Position:
,Goodwill:
Revaluated at R600 000 [was R900 000 end 2019]
Impairment in Goodwill = R300 000
Treat the same as depreciation and amortization in the statement of cash flows (ie add back)
Share investments
Opening balance = R 400 000
Total share investment was sold, i.e. closing balance is R 0
Sold at a profit of 50% = 50% × 400 000
= 200 000 (Gain in SPL)
Proceeds (SCF) = R 600 000
,Issued ordinary share capital
Retained earnings :
2020 2019
385 000 240 000
Retained earnings for the year = 385 000 – 240 000 = 145 000
, Statement of Profit or Loss:
Statement of Cash Flows:
